Corona shock

Britain’s recession is deep and wide, but new data reveals some towns and cities are hit harder than others

By Chris Cook, Ella Hollowood and Chris Newell

The corona shock in the UK is of a speed and scale we have never seen before. The virus is forcing millions of people to stay at home, to stay away from the centres of their towns, to close their shops, shutter their cafes and cancel their holiday plans.

Why this story?

The coronavirus has triggered a public health crisis. But the effect on the economy is critically important, too. Our future health and happiness will be linked to our prosperity.

For a crisis which has moved so fast, the usual economic data is very slow. And rapid action is essential – but it is not clear, right now, whether it is being targeted effectively.

Chris Cook and Ella Hollowood have been poring over this unusual real-time dataset – a weekly set of actual spending figures from millions of people – to get their heads around the scale of the crisis, and how fast it is moving. Where has spending slowed the most, and what are the factors that make some areas hurt more? David Taylor, editor

Tortoise analysis of bank spending data in England and Wales suggests that sales to consumers may have fallen by as much as one third between the start of March and the end.

This analysis, the first in a series, is built from high street bank data on consumers. The figures for spending in the first two weeks of the lockdown do not offer a complete picture, but data captured in the sample shows the fall in spending is uneven as some areas are being hit significantly harder than others:

Sales at non-grocery suppliers fell by around 45 per cent, compared to the same week of last year. Spending at grocery suppliers rose by 16 per cent, as people eat more at home.

Pretty university towns and cities have been hit twice – they have lost their students and their tourists. Oxford and Brighton saw massive spending falls – plummeting around 60 per cent compared to the same week last year;

The biggest falls have come in smaller tourist towns. Excluding grocery spending, Penrith in Cumbria has seen spending fall 82 per cent fall. Penzance, in Cornwall, has seen an 85 per cent drop;

The big cities have all suffered, but with significant variation. Leeds, Cardiff and Liverpool are down more than 30 per cent, but have done better so far than Sheffield and Nottingham – both down by around half;

London sales are down by 29 percent overall, but its figures are flattered by being a financial centre.Outside of the centre, spending is down by 40 per cent.

Areas with strong retail and wholesale industries, such as Peterborough, have also seen serious declines. Areas with lots of employment in coffee shops, restaurants and sports have also seen particular falls in sales – as have the areas around airports.

Local customers are critical. The strongest predictor of how well a neighbourhood’s businesses will do is what share of its old customer base lived nearby. Shops that rely on customers who travel more than a mile to get to them are doing worse.

The sample of data would, in a normal year, cover a flow of spending of about £50bn – a flow of about 4 per cent of all UK household spending. Using this data, we hope the Tortoise corona shock tracker will help identify the economic struggles – and the path to recovery – in real time.

The dataset, generated by the Impact Information Company, covers a sizeable minority of bank account holders across the country. The coverage varies from area to area, but captures at least 12 per cent and up to 27 per cent of the population across the country.

By watching these flows, we can see not just the broad scale of the corona shock, but its geographic unevenness. The data has been shared with Tortoise by Social Investment Business (SIB), a charity which invests in regeneration.

methodology

About the data

Find out more about our data and methodology

What data have you used?

Data represents total sales linked to geo-tagged consumer-facing merchant IDs for active debit card customers in England and Wales. We have received the data from Social Investment Business in an anonymised form and aggregated by electoral ward (2017 boundaries), of which there are 8,315 in England and Wales.

We have also, in our under-the-bonnet analysis, checked these results against other geographies. We have checked that our analysis is robust by comparing across different definitions of time period and different choices of geographical boundary.

We have supplemented local economy sales data with labour force data from the Annual Population Survey, international tourist visits from Visit Britain and student enrollments from HESA.

What time frame are you looking at?

Data compares sales in the latest week available with the equivalent week last year. The dates for each week of data we have received are as follows:

Week 1: Wednesday 25th to Tuesday 31st March, inclusive

Week 2: Wednesday 1st to Tuesday 7th April, inclusive.

What are the limitations of the data?

The bank accounts are all UK-based, and therefore the data does not account for international spend. The data accounts for a substantial share of consumers (never less than 12 per cent of an area’s bank account holders, and up to 27 per cent). But the sample is not constructed to be representative.

The data is partial: it is a sample showing how consumer spending is developing – just one part of the economy. There are also complications which we are working around – and themes we will explore in the coming weeks.

There are also distortions in the data from online business. Giving Amazon, for example, a single location does not reflect how that business is organised or where the economic activity of a sale is happening. Some online businesses are also just intermediaries. This effect will tend to mean our estimates of regional effects – outside a few places – are slightly overstated.

The underlying dataset shows sales, divided by which of the 8,300 electoral wards in England and Wales where the spending was logged. The dataset tells us about the business happening in each place, as opposed to spending by local residents. Using the data, SIB aims to identify “areas in the UK that are being hit hardest by the lockdown”.

There are limits to the data (see the “About the data” box above) of which the most salient is the treatment of online spending. The problem is with assigning sales by a relatively small number of large companies to a specific location.

Some online companies are very large, and cannot really be said to operate from one place. If you buy something from Amazon, the economic activity you spur will be in its warehouses and by its drivers – not in its headquarters.

Other companies are also really just intermediaries for other businesses. If you buy something via an online marketplace, such as eBay, from an independent retailer, the income may be allocated wrongly.

This is a challenge as online spending has risen: sales logged in the London ward of Hoxton East and Shoreditch, where Amazon and other tech companies are headquartered, tripled between the beginning and end of March. We will explore this issue further – but the plausible scale of these effects is dwarfed by the sheer size of the overall shocks.

Larger towns and their hinterlands

Looking at each of the past two weeks, we can see and pick out some patterns about where the damage is at its worst.

methodology

What is a town?

There are towns in the UK whose residents argue endlessly about where the towns really begin or end. We have had to wade into this argument – and we have chosen a slightly unusual set of definitions.

We have grouped detailed local spending data into geographic regions known as ‘travel to work areas’ (TTWAs). These are areas devised by the UK government. The idea is, in effect, to redraw town boundaries so they represent the economic reality on the ground.

Each zone is, in economic terms, supposed to be one single place. Most of the workers who have a job in a TTWA will also work in it. And most of the people who live in a TTWA will have their jobs there.

These areas were devised using 2011 census data, there are currently 173 travel to work areas in England and Wales, of which 149 are in England, 18 are in Wales and 6 are cross-border.

There are always going to be problems with where the borders go – and people who resent being put into a Greater Liverpool (or letting other people in). But, for us, these definitions have a few significant advantages.

This week, we are looking at the national, regional geography of the macroeconomic impact. We want to see the places where people tend to live together with the places where they tend to work.

If we used normal borough borders, some cities would look very bad simply because their suburbs, where things might a bit healthier, happen to be classed as part of a neighbouring town.

A nice side-benefit of this approach is that it means we have coverage of the whole country. Everywhere is part of a TTWA – even if it is small and rural.

Starting with larger towns and their surrounding areas – those with more than 170,000 residents – the clearest relationship visible in the data relates to tourism and education.

Some of the worst affected places are reliant on these two industries: Oxford, Brighton, York, Canterbury and Bath have been hit by a double whammy of closed universities and visitors staying away.

A city built on half a million tourists each year, Oxford is now experiencing one of the largest losses to its local economy. Compared to the same week of last year, total spending by British account-holders in the first week of April was down by 61 per cent in the city, nearly 1.5 times the national average. This was driven entirely by a collapse of sales at non-grocery outlets.

Places with airports, predictably, are doing very badly. As are areas where a large share of employees work in cafes, bars or restaurants. Retail and wholesale centres have also seen a sudden stop – places like Peterborough, Colchester, Chelmsford, Burnley and Nottingham.

We will need to watch to see whether this is one-off freezing of local spending or whether, as people lose jobs, it becomes a vicious cycle of decline. Right now, all we can say is that almost everywhere is doing poorly.

There are two apparent exceptions: Milton Keynes and Yeovil are both up. But these are the online effects: both towns happen to be small consumer spending areas with some back-end financial businesses that have seen sudden rises. If you exclude the wards containing those businesses, the towns are down by 18 per cent and 39 per cent respectively.

Smaller local economies

Drilling down into economic areas with fewer than 170,000 residents, you can see the same patterns. Again, remarkable falls everywhere. The smaller zones in our analysis have tended to suffer like the large.

But the decline in tourism is even starker when you look at smaller towns.

Eight of the 20 small town areas with the biggest losses are in the south west: Taunton, Barnstaple, Bideford, Kingsbridge and Dartmouth, Falmouth, Penzance and Wadebridge are all local economies geared around tourism, with a high proportion of jobs in accommodation, food and drink services and retail.

Things will get worse if the whole holiday season is lost for a year. We would expect, as the temperature rises in the coming months, that losses in smaller resort towns across Cornwall and Devon will rise and rise compared to equivalent weeks in previous years.

Cumbria, at the other end of England, is already one of the hardest hit counties. Its tourist season would normally be well underway, packed with spring walkers. Penrith, just north of the Lake District, is the hardest hit community in the UK. Along with Kendal, in the south Lakes, it is reporting some of the highest losses in the country. These figures will understate the losses: income from foreign visitors will not be captured by this UK bank customer data.

The parts of that hilly county which are more industrialised – Barrow and Whitehaven – are more sheltered from the shock. But even they are down by around 36 per cent.

Hazel Blears, the former communities secretary, says that Cumbria, where she now lives, is “incredibly fragile…the town centres themselves are quite fragile…because of their remoteness, their dependence on tourism, particularly for South Lakeland”.

Cumbria is the home to Workington, one of the emblematic northern parliamentary seats captured from Labour by the Tories at the last election. Despite not being as exposed to tourism as other parts of the country, sales in that town are still down by 56 per cent. Blears argues that if the government is serious about “levelling up” these parts of the country, ministers will need to be much more aggressive about spending in these places to avoid the shock becoming a catastrophe.

Blears, who is chair of SIB, said that if Cumbria is not given support, the collapses could cascade into deeper crisis. “The problems then will be generational…This will go on for the next 20 years. So I would say money spent now to alleviate some of these problems is an investment in the future.”

Big cities

Turning to the biggest cities, Birmingham saw a 42 per cent drop, while Liverpool dropped by 33 per cent and Manchester by 40 per cent.

London’s losses are lower than other cities, at around 27 per cent – but there is a tale of two cities here. “Zone 1” – the central core of the city – is down by 17 per cent. The remaining five zones of the city are down by 40 per cent.

A large part of this divergence will be because of the presence of online companies, banks and other institutions where people are continuing to make payments, which could cover items like mortgages.

There is another factor within the towns and cities. Which wards are doing well or poorly is, in large part, explained by what proportion of their local business is done with very local people. Consumers are not travelling, so businesses’ customer bases are the local neighbourhood.

This time last year, there were about one in 10 urban wards where the majority of sales were to people living within one mile. In those wards, where shops are built to service local custom, total average spending is down by just 7 per cent. They are disproportionately in the centre of cities, where a one-mile radius will contain more customers.

By contrast, in the third of urban wards where fewer than 10 per cent of transactions were with local residents, the declines in spending average around 40 per cent. If your customers used to travel to your shop, you no longer have customers.

The localisation effect explains why a lot of areas in the inner city are doing better than those in the suburbs, where things are more spread out. But it is happening everywhere within towns: local-facing shops are doing better throughout – in rich areas and poor.

This does not mean that the effects are the same for consumers. If everyone is now buying from smaller, local shops, it is likely to mean we are paying higher prices for the same goods than if we were going to big supermarkets. That is likely to hit poorer people harder.

A snapshot of retail

The increase on food shopping and the collapse of non-essentials is visible in two parts of London.

The “West End” ward in Westminster contains Regent Street and much of Oxford Street, two of London’s shopping hubs. In the last week, the spending flow fell to just under £4m – well down below its normal flow of £10m. Fewer than one per cent of sales in the ward to sampled bank customers went to people living within one mile (the true number will be even lower, once foreign visitors are included).

Some of the losses may, in some places, have been made up for by moving online. The Queenstown ward in Wandsworth is a good example: it is the home to the New Covent Garden market, which has moved to delivering fruit and vegetables to households: their customers in restaurants are, after all, no longer buying. As a consequence, grocery spending totals in that ward have been rising rapidly – from around £60,000 per week this time last year to £140,000 now.

There has been a rise in online shopping: some of the best performing wards in the country contain supermarkets that do deliveries.

You can see these variations within London and its surrounding areas by looking at a segment of the Thameslink network map – a railway network which runs through London from one side and out of the other. For stations along the Bedford-to-Brighton Thameslink strand, we have worked out estimates for the size of the total corona shock for the area within a 20-minute walk of each station.

The Thameslink
line crosses from
Hertfordshire
into London

The journey highlights
that the reason for
Zone 1 doing so well is
the financial centre

From Purley, at the
southern edge of London,
the train barrels on down to
the Sussex south coast.

This spending data is fuzzy. We are looking at shadows on the wall. But we will combine it with other measures to fill out a better picture of the shock as it unfolds. But what is already evident is the sheer scale of the cliff-edge – and the extreme problems facing anywhere that depends on visitors.

Photograph Getty Images

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